Saudi Arabia Corruption Report

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Snapshot

Companies
operating or planning to invest in Saudi Arabia face a moderate to high
risk of corruption. Abuse of power, nepotism and the use of middlemen (wasta)
to do business are particularly common. There is an overlap between
business and politics, and the latter is generally based on patronage systems.
The Combating Bribery Law and the Civil Service Law criminalize various
forms of corruption, including active and passive bribery (baksheesh) and abuse of functions, but the government enforces these laws selectively. No law regulates conflicts of interest,
and some officials engage in corruption with impunity. The royal family
and social elite heavily influence the oil and petrochemicals sectors. Gifts are regulated under Saudi law, but facilitation payments
are not addressed and should be presumed to be illegal. Saudi Arabia
started a widely reported corruption crackdown in late 2017 which
ensnared many high-profile figures.

Judicial System

There is a moderate risk of corruption in Saudi Arabia’s judiciary.
While operating under the religious clergy, the judicial branch has
significant autonomy from the executive branch (BTI 2018). However, this autonomy has recently been eroded Companies report moderate trust in the independence of the judiciary (GCR 2017-2018). Companies indicate that bribes and irregular payments in return for favorable judicial decisions are not common (GCR 2015-2016).
Companies are not sufficiently satisfied with the efficiency of the
legal framework when it comes to challenging regulations (GCR
2017-2018). The legal system is based on Islamic rules, known as Sharia
law (ICS 2017). Efforts to codify these laws remain incomplete (ICS 2017).
A number of judges have been removed in recent years for corruption and
sympathy with extremist religious groups (BTI 2018). Judicial
corruption is also a problem in relation to land disputes and cases
involving the royal family’s interests, in which case judges usually
yield to royal pressure (BTI 2018)

Many disputes in Saudi Arabia are handled by administrative bodies
rather than the courts (ICS 2017). The Saudi Board of grievances has
jurisdiction over commercial disputes between private contractors and
the government (ICS 2017). The same board also reviews foreign arbitral
awards to ensure they comply with Sharia law; a process that can take
years and of which the outcomes are generally unpredictable (ICS
2017). Judicial professionalism is limited in technical areas of
commercial law (BTI 2018). In several cases, disputes have caused
various problems for foreign investors such as having their ability to
leave blocked and forcing them to remain in Saudi Arabia against their
will (ICS 2017). In cases of alleged fraud,
foreign investors may also be jailed to prevent their departure from
the country while awaiting police investigation or trial (ICS 2017).

Enforcing a contract takes around the same amount of time as the
average among OECD high-income countries, but it is significantly more
costly (DB 2018).

Police

The Saudi police force carries a low risk of corruption. Civilian
authorities maintain effective control over the security forces (HRR 2017).
Companies are confident in the reliability of Saudi police forces to
protect them from crime and to uphold law and order (GCR 2017-2018).
Companies should note that, aside from the civil police, the Commission
for the Promotion of Virtue and Prevention of Vice (CPVPV, often
referred to as the “religious police”) has the authority to monitor
social behavior, but its powers to enforce laws have been curtailed (HRR
2017).

Public Services

Corruption in Saudi Arabia’s public services is a moderate risk for
companies. Companies indicate that bribes and irregular payments are not
regularly exchanged when obtaining public services (GCR 2015-2016). The
Saudi regulatory system is not transparent and bureaucratic procedures
are cumbersome (ICS 2017). However, some organizations do engage
stakeholders in the regulatory process (ICS 2017). There has been
extensive reporting about abuse of power by local judges, notaries, and
municipal administrations (BTI 2018). Regular public servants accused of
corruption are fired somewhat frequently, but those with strong
patronage links to the royal family can engage in corruption with
impunity (BTI 2018). Saudi Princes are only very rarely removed from
office; it takes a major offense for this to happen (BTI 2018). While
the Kingdom is trying to modernize and is pursuing its “Vision 2030”
project, there has been little change in the bureaucracy; bureaucratic
stalling and corruption remain (BTI 2018). Large institutions, including
the ministries of the interior and defense, remain unaccountable (BTI
2018).

In November 2017, dozens of princes, ministers, and other prominent
business people were detained in the Riyadh Ritz Carlton following the
creation of an anti-corruption committee following orders from Crown
Prince Mohammad bin Salman (The Guardian, Jan. 2018). The
authorities claim to have recouped in excess of USD 100 billion in
allegedly illicitly gained funds from the detainees (The Guardian,
Jan. 2018). The anti-corruption drive is said to be a dramatic change
for the Kingdom; removing protections for powerful figures who
benefitted from decades of corruption (The Guardian, Jan. 2018).

Starting a business takes ten steps and double the amount of time compared to the average among OECD high-income countries (DB 2018).
Dealing with construction permits takes more steps, but significantly
less time compared to the average among OECD high-income countries (DB
2018).

Land Administration

Saudi Arabia’s land administration carries a moderate risk of
corruption. Business executives generally find their property rights to
be well protected (GCR 2017-2018). The legal system generally adequately
facilitates the acquisition and disposition of all property (ICS 2017).
However, there is no generally accepted public registry and powerful
people have been known to be able to obtain land deeds and appropriate
land in possession of less powerful owners (BTI 2018). Foreign corporate
entities are allowed to purchase real estate according to the
procedures set out in the foreign investment code (ICS 2017).

Expropriation occasionally happens, but there are no reports of
expropriation without proper compensation (ICS 2017). However, judicial
corruption does occur, particularly in cases concerning land disputes
and land registration (BTI 2018). The National Anti-Corruption
Commission alleged in January 2016 that a notary in the al-Muzahmiyya
Governorate took bribes and issued as much as 800 land deeds illegally
(BTI 2018); the Ministry of Justice has denied the allegation (BTI
2018).

Registering property in Saudi Arabia takes only two steps and less
than two days, which is significantly better than elsewhere in the
region (DB 2018).

Tax Administration

There is a low risk of corruption in the Saudi Arabian tax
administration. Companies report that irregular payments or bribes in
relation to annual tax payments are very uncommon (GCR 2015-2016). Saudi
investors are exempt from taxes but pay a religious tax (zakat)
of 2.5 percent (ICS 2017). However, the tax system in the country
favors Saudi companies and joint ventures with Saudi participation over
foreign investors (ICS 2017).

Companies spend significantly less time and make significantly fewer
payments annually compared to the average of OECD high-income countries
(DB 2018).

Customs Administration

There is a low risk of corruption in Saudi Arabia’s customs
administration. The border administration is transparent, and irregular
payments in relation to imports and exports rarely occur (GETR 2016).
However, customs procedures are considered burdensome (GETR 2016). The
costs and required time to comply with border procedures generally
exceed regional averages (DB 2018).

Public Procurement

Saudi Arabia’s procurement sector carries a moderate risk of
corruption; defense and security procurement
is particularly corruption-prone (BTI 2018). Companies indicate that
irregular payments and bribes are fairly uncommon in procurement
processes (GCR 2015-2016). Companies also perceive favoritism in the
decisions of government officials as fairly common, but diversion of
public funds is perceived to be uncommon (GCR 2017-2018). Defense
spending accounts for 30 percent of the government’s budgetary
allocations, but it lacks transparency and often exceeds such budgeted
figures (GDACI 2015).
Procurement does not appear to be based on a clearly defined national
defense and security strategy (GDACI 2015). Ministers and other senior
government officials appointed by royal decree are prohibited from being
involved in business activities with their ministry or organization
while employed there (ICS 2017). Investors are advised to exert caution
when bidding on public tenders in Saudi Arabia and are recommended to
use a specialized procurement due diligence tool.

A well-known corruption case in Saudi procurement involves the
British defense company BAE Systems and Saudi government officials. The
case revealed false accounting in the contract made between BAE and
Saudi officials as well as substantial unofficial payments received by a
senior Saudi official from BAE. For more information on the case, see
the Guardian‘s collection of BAE-Saudi-related articles.

Natural Resources

Corruption and a lack of transparency are problems in the Saudi
Arabian natural resource sector, making it a high-risk sector for
businesses. Even though Saudi Arabia is dependent on its resources,
reporting requirements in the oil, gas, and mining industries are
inadequate (NRGI 2017).
Foreign companies’ participation in oil extraction is restricted to the
Neutral Zone gas reserves (NRGI 2017). There are unclear rules
governing the licensing process and the sovereign wealth fund is badly
governed (NRGI 2017). State-owned oil company Saudi Aramco has exclusive
control of Saudi Arabia’s oil and is the world’s largest and most
coveted and secretive oil company (Economist, Jan. 2016). The
massive revenues from the sale of oil are redistributed through welfare
programs and patronage, but it is unclear how this source of public
wealth becomes a source of privilege for the royal family and its
clients (FitW 2018).

Legislation

Saudi Arabia has a comprehensive legal framework to address
corruption, yet the authorities’ efforts to curb corruption are modest
and impunity for corruption offenses exists (HRR 2017). Saudi Arabian
corruption laws are not uniformly enforced, and punishments are
selective (BTI 2018). The National Anti-Corruption Commission primarily
focusses on mid-level bureaucratic abuses and regularly complains about
non-cooperation from other agencies (BTI 2018). The Commission has not
yet held any senior figure accountable for abuse of position offenses
(BTI 2018). The main anti-corruption laws are the Combating Bribery Law and Civil Service Law,
which cover public-to-public and public-to-private bribery but not
private-to-private bribery. However, employees of banks and “joint stock
companies” can be considered public servants and may thus be liable
under the framework (Baker McKenzie 2017). The laws criminalize abuse of authority and office for personal interest, active and passive bribery, and bribery through intermediaries. Gifts, facilitation payments, and hospitality are also criminalized, depending on their intent; there is no formal de minimis (Baker
McKenzie 2017). Violations can result in prison sentences up to 10
years and fines of up to SRA 1 million (Baker McKenzie 2017). The briber
can be excused if he or she reports the crime to the Ministry of the
Interior before its discovery (Al Tamimi: DBiSA, 2016). Saudi Arabia’s Monetary Agency has guidelines for detecting money laundering activities and enacted an Anti-Money Laundering Law; a
person found guilty of money laundering can be sentenced to up to 10
years in prison and/or receive a fine of up to SAR 5 million, and
illegal funds are confiscated. Corporate Governance Regulations provide for the independence of company board members as well as transparency and rules on disclosure. The Government Tenders and Procurement Law regulates public procurement and requires the publication of tenders and electronic tendering. The Anti-Concealment Law
also addresses fair competition. Public officials are not subject to
financial disclosure laws or conflict of interest laws (BTI 2018).

Civil Society

The law does not provide for freedom of expression and the government
frequently restricts free speech in practice (HRR 2017). Saudi
Arabia’s Basic Law of Governance describes the role of media as
educative, unifying, and supporting government agendas, but the country
does not have a freedom of information law (FotP 2017).
Thus, Saudi media falls short of providing an accurate picture of the
pervasiveness of corruption in the country. However, the country’s
citizens have increasingly turned to the internet and platforms such as
Twitter to voice their opinions, thereby forcing traditional outlets to
cover a wider range of stories (FotP 2017). Several major media outlets
are owned by members of the royal family, and individuals are not
permitted to publically criticize the royal family (FitW 2018). The
government seldom interferes overtly, as most media outlets practice
self-censorship (FotP 2017). The media environment in Saudi Arabia is
considered “not free” (FotP 2017).

The government severely restricts the right to freedom of association
(HRR 2017). Saudi officials frequently refuse to register political or
human rights groups (FitW 2018). Reforms were made in late 2015 that
should make it easier for Saudis to operate NGOs (BTI 2018).

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About the Author

admin - Arraale Mohamoud Jama Freelance Journalist and Human Rights Activist
Arraale, is a 20 year experience as a professional Journalist and human rights activist Over the years, worked for the major News Papers in Somaliland as a reporter, editor and contributor. 2008 established website Araweelo News Network, he currently runs a web site based in Somaliland. who is the specializes in the investigation and reporting on issues relating to human rights, democracy, and good governance. contact: Info@araweelonews.com jaamac132@gmail.com Send an SMS or MMS to + 252 63 442 5380 WhatsApp + 252 65 910 7347.